The Government Accountability Office Warns That New Laboratory Rates May Lead to $11B in Excess Payments

On November 30, 2018, the United States Government Accountability Office (GAO) issued a noteworthy report that the implementation of new rates for laboratory testing may lead to billions of dollars in overpayments to labs. The GAO concluded that while CMS’s new clinical lab fee schedule was supposed to save hundreds of millions of dollars, changes in the way Medicare pays for panels of tests could end up costing the program approximately $11 billion dollars.

The GAO is an independent, nonpartisan agency that works for Congress. Often called the “congressional watchdog,” the GAO examines how taxpayer dollars are spent and provides Congress and federal agencies with objective, reliable information to help the government save money and work more efficiently. As required under the Protecting Access to Medicare Act of 2014 (PAMA), the GAO conducted a study to review CMS’s implementation of new payment rates for laboratory tests. To revise the rates, CMS collected data on private-payer rates from approximately 2,000 laboratories and calculated median payment rates, weighted by volume. CMS did not, however, receive data from all laboratories required to report. As a result, the GAO criticized CMA for using incomplete data in its calculations and recommended that CMS collect complete private-payer data. HHS agreed with this recommendation.

The GAO’s independent study found that the new payment rates could lead Medicare to pay billions of dollars more than is necessary and result in Clinical Laboratory Fee Schedule (CLFS) expenditures increasing from what Medicare paid prior to 2018 for primary two reasons.

          (1) Change in Fee Schedule Enables Labs to Potentially “Unbundle” Tests

First, the change in the fee schedule enables labs to significantly “up-charge” for panel tests. Prior to 2018, Medicare always paid a bundled rate for panel tests (groups of laboratory tests generally performed together) regardless of how labs submitted their claims. In the new schedule, labs can bill for each component test individually if they submit claims that way. According to the GAO report, “…if a laboratory submitted a claim individually for the 14 component tests that comprise a comprehensive metabolic panel it would receive a payment of $81.91, a 528% increase from the 2018 bundled payment rate of $13.04 for this panel test.” As a result of the study, CMS is reviewing whether it still retains the authority to bundle payments rates.

            (2) Incorrect Baseline Could Result in Excess Payments

Second, in order to change the fee schedule, CMS used the maximum Medicare payment rates in 2017 as a baseline to start the phase in of payment-rate reductions instead of using actual Medicare payment rates from 2017. This resulted in excess payments for some laboratory tests and, in some cases, higher payment rates than those Medicare previously paid, on average. Accordingly, the GAO recommended that CMS phase in payment-rate reductions that start from the actual payment rates rather than the maximum payment rates.

Given the large amount of Medicare payments at stake, large laboratory testing companies are certainly watching these developments closely.